Favourable news out of China last week helped stop the selloff in global markets.  The S&P500 closed above 1900 for the first time in its history.  Even the NASDAQ; which was sold off by around 10% at the beginning of the year; rallied significantly last week.
This rapid recovery seems to suggest that markets are climbing a wall of worry.  They are ignoring the traditional pattern of “sell in May and go away”. From where I stand, it’s hard to say whether you should stay in markets; take your profits; and/or wait for a buying opportunity; if or perhaps when markets pull back.
The mixed global picture, and markets behaving in unexpected ways makes it a difficult call.
Over to America, where markets are watching what the Fed will do with interest rates. The minutes from the last FOMC meeting suggest they are in no hurry to raise rates.  They don’t expect the falling employment figure to generate wage pressure and, in turn, push up inflation. Instead, the FOMC has sided with the view that the unemployment rate is not overestimating the amount of slack in the employment market; and thus there is limited risk of wage-led inflation.
As we mark the first anniversary of Taper Tantrum, this is not what the European Central Bank wants to hear.  Lower interest rates are keeping the US Dollar weak and pushing up the Euro. This is not assisting Europe where the stronger currency is putting a handbrake on its growth potential.
The ECB will need to cut rates at its next meeting to loosen monetary supply and weaken the Euro.  It would appear as though the so-called "currency Wars" are back; as the continued lose monetary conditions in the US are affecting other economies and their competitiveness.  This is causing an outbreak of "Rate Rage".
Saying all that, we expect to receive confirmation that the US economy contracted in the first quarter of this year. We believe that the initial estimate of a 0.1% annualised rise in GDP will be revised to a fall of 0.6%. However, this data is in the past and other releases this week should show that activity in the US has since rebounded. Like the positive housing data last week which indicated a strengthening rebound in housing.
A final word on emerging markets; where growing enthusiasm amongst investors has seen emerging market equities underperformance vis-à-vis developed markets begin to unwind. So much so that April was the first month in more than a year in which there were net inflows into ETFs and funds that invest in emerging market assets.  The returns from both emerging markets and developed markets are now broadly equal for the year to date.
Of course, emerging market equities continue to face several headwinds including less accommodative US monetary policy; structurally slower growth in the BRIC economies; weak commodity prices; and political instability in a number of countries.